Suppose you’ve considered life insurance coverage and have come across the words “underwriting” and “risk class” employed. Indeed, those words can sound intimidating–especially if they make you feel like someone will be scrutinizing the risks you’ve taken in your life.
Be assured that life insurance companies don’t have to be aware of all concerning you. However, they need to determine the amount of risk it is to insure to decide if they will cover you and the amount they will cost. This is why they employ underwriting, a method that can assign you a specific risk category based on information they gather in an underwriting procedure.
“The underwriting system is designed to provide the most-fair price for a customer’s risk profile,” says Neal Kerins, vice president of product development for insurance for John Hancock. “It’s a concept of balancing affordability with offering insurance to the broadest range of people.”
Before submitting an insurance application, knowing about the system and the different risk categories that insurers employ is essential. This will give you a better idea of how your life insurance premium will be determined.
What Is Life Insurance Underwriting Class
Underwriting courses for life insurance provide a method by which insurance firms can classify applicants into various risk classes based on age, health status, job, and many other variables. The risk class decides the amount an applicant will pay for life insurance.
How the Life Insurance Underwriting Process Works
The process of underwriting requires collecting a variety of data about you. It starts with an application form that inquires about your health history, age, mental health, family medical history, job, and even interests.
In many instances, the life insurance company also obtains your doctor’s medical records and your history of prescription drugs, along with your driving history and other records, to verify your identity and additional risk-related factors. A “fully underwritten” policy is based on all this personal and medical information. A policy application could also require a medical examination. (You may be able to avoid the test if your insurer uses “accelerated underwriting.”)
During the examination during the exam, your body’s weight, height, and pulse will be assessed. Urine and blood samples will be taken. Also, an EKG could be required if you are age 50 or over and are applying for an insurance policy with a death benefit of millions.
The information gathered during underwriting determines which risk class you are in. Your risk class will be used, along with your gender and age–to determine the price you have to pay for insurance.
Understand the Life Insurance Risk Classes
Insurance companies generally employ three risk classes: preferred, super preferred, and standard. The requirements for each of these classes are relatively similar from one company to the next firm, but the precise specifications may differ a bit. If applicants fail to satisfy the requirements of these classes, they may be categorized as non-standard.
Super Preferred Risk Class
Anyone eligible for the super preferred — sometimes referred to as preferred plus class is in excellent overall health and doesn’t engage in hazardous activities or work in a hazardous job, Kerins says. It is impossible to have a history of smoking cigarettes within the past five years or drinking or using drugs in the last ten years. You shouldn’t have a family previous history of heart disease. In the central part, you won’t be able to be a child of someone who died due to cardiovascular disease or cancer before age 60 or 65.
According to Todd Balderson, founder and CEO of Balderson Insurance Agency in Maryland, a few applicants are eligible for super preferred status. “You’ve got to be hitting all the numbers–no traffic tickets, no DUI, textbook blood pressure and cholesterol,” Balderson says.
Preferred Risk Class
A person who is in the risk class that is preferred is similar to people in super preferred. But, Kerins says they could be taking medications to treat a health condition like hypertension, slightly overweight, and have family histories an indicator of high risk.
People living with Diabetes can be considered to be in the preferred class when their Diabetes is well managed, and so can people with mental health problems like depression and anxiety that are being treated. “If you’re taking medication, that’s good because you’re addressing the condition,” Kerins declares.
Standard Risk Class
A majority of people fall into this category. Kerins says that a person in the average class will likely have an increased BMI (BMI), take multiple medications, or have possible health problems. Your driving record doesn’t need to be perfect, and specific dangerous jobs like aviation are permissible. The risk classification standard is more flexible regarding smoking. Typically, you must not smoke for one year (rather than five or more years). However, you could be eligible in the regular class even if you are an active smoker of marijuana–depending on the insurance company.
Substandard Table Rating
Insurance companies use table-based numbers or letter rating systems to determine whether policyholders are considered substandard. Kerins says this rating system is employed to identify those with significant health issues or who have an infrequent track record of addressing health issues. Conditions that could cause a table rating are previous alcohol abuse or treatment for asthma, severe asthma, bipolar disorder epilepsy, multiple, and Type 1 Diabetes.
Although many people suffering from medical issues can be eligible to receive life insurance coverage, the insurers will not deny applicants who have specific health problems. They can be a result of–but not restricted to current alcohol use, recent treatment, cirrhosis or the treatment for cancer currently in progress or treatment with drugs, a recent heart attack, HIV, kidney dialysis, the mental illness that required hospitalization during the last 12 months, or suicide attempts in the last year.
How Your Risk Class Affects Your Life Insurance Rate
The higher your score The higher your score, the less your insurance cost will be. Standard “standard” rating is the base, Balderson says. Therefore, rates decrease with every class higher than the standard and rise for each table below the standard.
Balderson says An A or a table rating will cost you 25% more than the average category. So do rates when table ratings increase (B, C, D, 2, 3, 4, etc. ). “It can be quite a large gap from super preferred [rates] to table rated,” Balderson declares.
For instance, Balderson says a 35-year-old woman in the preferred class would receive a million-dollar 30-year term life insurance policy with an annual premium of $613. The preferred class rate is $732, and the regular class price would be $1,192.
If you’re an active smoker, you could be eligible for the standard or preferred category if your profile meets other criteria required for those classifications. The rates for smokers are higher than those who are not, even though you’re in the risk category. If you take the same example above, the most preferred rate for a smoker could be $2,320 per year. Balderson says the annual price for smokers in the standard class would be $ 3,000.
The premium difference for long-term life insurance policies for non-smokers versus smokers can be more significant. For instance, Kerins says the annual price for a 45-year-old woman with a $1 million universal life insurance coverage from John Hancock would be $8,800. Smokers in the regular class would pay $14,348 for the same insurance. (Permanent life insurance policies are more expensive than term life insurance policies. ).
The most popular Life insurance classes for underwriting include:
- Super preferential It is considered the low-risk category and typically comprises applicants in excellent health who do not have any significant health problems and are non-smokers.
- Preferential: This is the lowest-risk class, including applicants who are healthy, have minor health issues, or are often smokers.
- Standard: The HTML0 Standard class is the third-lowest risk category and comprises applicants who are healthy, have moderate health problems, or smoke regularly.
- Substandard HTML0 is considered the highest risk category and comprises applicants with significant health issues, frequent smokers, or other risk factors.
The exact criteria for each underwriting class differ from one company to the next. However, some elements that are evaluated comprise:
- Health Histories
- Medical Medical
- Smoking status
- A family history of premature deaths.
The process of underwriting for life insurance is often complicated and long-winded. But, it’s essential to understand the process to obtain the most favorable price on an insurance life policy.
Here are some suggestions to get the best underwriting course:
- Ensure you are honest with your insurance provider regarding your medical background and lifestyle.
- Complete a physical exam before applying for life insurance.
- Stop smoking.
- Make changes to boost your health overall.
Following these suggestions and tips will increase the chances of obtaining an underwriting class that is lower and a lower premium for life insurance.
Here are a few additional points to be aware of when it comes to life insurance classes for underwriting:
- The class of underwriting you’re assigned to can alter over time based on your health and other variables.
- Getting an underwriting class that is lower after completing a medical test or submitting additional details for the insurer is possible.
- If you’re in an underwriting class that isn’t up to par, in which case, you may be eligible to obtain life insurance; however, you’ll probably have to pay a higher rate.
An experienced life insurance agent can help you understand the underwriting process and help you secure the most favorable price on an insurance life policy.